Self-employed claiming SEISS must be mindful of tax liabilities

Chancellor Rishi Sunak recently confirmed an extension to the Self-Employment Income Support Scheme (SEISS), with a second cash grant due to be provided to eligible self-employed applicants in August.

Those self-employed professionals eligible for the second SEISS cash grant must have been adversely affected by the COVID-19 pandemic on or beyond 14th July 2020.

The grant will cover 70% of a self-employed applicant’s annual average profits, up to a maximum of £2,190 per month, and is payable for the three months of June, July and August.

Although the SEISS labels the support funds as ‘grants’, it’s important for all self-employed users of the SEISS to be aware that the grant will be taxable in your next self-assessment tax return.

The Low Incomes Tax Reform Group (LITRG), a charity focused solely on UK taxation, fears that many recipients of the first or second SEISS grant will be unaware of the tax due on these lump sums.

The LITRG warns that as much as a third of these lump sums may have to be paid back to HM Revenue and Customs (HMRC) in the form of income tax and class four National Insurance contributions (NICs).

As the SEISS grants are paid during the 2020/21 tax year, the tax and class four NICs relating to the grants will be payable no later than 31st January 2022.

Victoria Todd, head of LITRG, said: “Many claimants of SEISS grants might, understandably, use the money as soon as they get it, for example, to catch up on liabilities or to meet essential living costs – but they need to think now about budgeting for income tax and National Insurance on it.

“We urge HMRC to do as much as they can to publicise that the grants are chargeable to income tax and National Insurance, to reduce the risk of people being surprised by higher-than-expected 2020/21 tax bills.”

Although accountants are not authorised to submit SEISS claims on behalf of self-employed taxpayers, we can support you with any queries you may have regarding the SEISS process.

To arrange a free initial consultation with our friendly, experienced team, call us today on 01423 871 870 or drop us a line using our online enquiry form.

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Date published 18 Jun 2020 | Last updated 20 Mar 2024